On Obamacare Death Spirals and Medicaid Time Bombs

By Matt Purple on 1.15.14 | 1:41PM

The left’s clairvoyant wonks are pleased with themselves this week. The Obama administration recently announced that 24 percent of enrollees on the Obamacare exchanges have been between the ages of 18 and 34. That was enough for Ezra Klein to herald “The death of Obamacare’s death spiral” in today’s Wonkblog. The death spiral was the prediction made by many that not enough young people would dive into the Obamacare risk pools, leaving them filled with high-cost elderly patients and driving up premiums.

Of course, the ratio is mostly what we’re worried about, not the number; getting an extra 100,000 young people to sign up while you get an extra 500,000 old people doesn’t improve the stability of the insurance markets -- it makes them more unstable.

Of course, we still have the Massachusetts experience. But the more I think on that, the less confident I am. The chart I swiped from Jonathan Cohn for yesterday’s post shows a positive trend -- but it’s only for Commonwealth Care, the subsidized program, not the overall market. And Massachusetts didn’t, as far as I am aware, have the same rash of mass cancellations, so they only had one enrollment spike, not two, as Garance Franke-Ruta showed in October.

She’s absolutely correct about the ratio. Let’s consider some additional notes of pessimism.

First, HHS’s enrollment figures calculate how many people make it through the application process. This is nettlesome enough given the problems that have plagued the website, but what those numbers don’t show is how many customers have actually paid their first month’s premium. Last month, insurance companies reported that as few as 15-20 percent of customers had paid the premium on certain plans. Other estimates put the figure as low as 5 percent. For a young enrollee, there’s a mammoth difference between navigating a website to purchase a product and putting the check in the mail.

Second, youth enrollment is still way behind what it should be. HHS may have 24 percent young people, but according to its own projections, it needs 38 percent. Optimists point to the sluggish early enrollment rate of the young in Massachusetts, which later increased significantly. But as McArdle notes, Commonwealth Care only tells part of the story and can’t be applied as a national template.

There’s a big misconception that this is about young people. That’s baloney. It’s about healthy people. A healthy 20-year-old might only pay a $100 premium. You want healthy 40 and 50-year-olds.

This raises the question: What if the young people who are signing up are sick patients who will take out more than they put in? Those who enroll for health insurance early tend to be ailing and in desperate need of care.

Finally, focusing on the age or health of enrollees is much too narrow. Another crucial figure is how many enrollees will receive government assistance, either through Medicaid or a premium subsidy. Terry Jeffrey reported yesterday that so far, about 5.6 million out of 6 million—an astonishing 93 percent—of those signed up qualify for federal funding. Entitlements already consume nearly half of the federal budget, and Medicaid costs are projected to spike. So in addition to the death spiral, we should be worried about what Michael Tanner felicitously terms the “Medicaid Time Bomb.” A balanced risk pool that annihilates the federal budget is less than helpful.

We should have learned that lesson already, from the Massachusetts law that the wonks so love to cite. Romneycare would have bankrupted its state if it weren’t for an injection of federal funds. Obamacare on track to succeed? Whether or not we’re dizzy from a death spiral, we shouldn’t ignore the portentous ticking in the background.

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